Finances, stability key tFinances, long-term stability to be key factors in possible bidding war for hospital

Feb. 11, 2014

Written by

John Ferro

Poughkeepsie Journal

ONLINE

Financial stability will be a key factor in Westchester Medical Center’s bid for Saint Francis Hospital.

On Monday, Westchester County Medical Center in Valhalla submitted its official bid, joining Town of LaGrange-based Health Quest. Given the importance of finances in the bidding, the Poughkeepsie Journal examined records for both medical institutions.

Westchester Medical Center is one of 45 state public authorities akin to the New York State Bridge Authority or the Thruway Authority. Formerly a county-owned facility, it was spun off in 1998 as a public benefit corporation by an act of the state Legislature.

It employs 3,300 at its hospitals and medical practices under civil service rules with pensions that are funded through the state retirement system. Its buildings are owned by Westchester County under a lease through 2057. Members of its board are appointed by either the governor or the state Legislature.

Health Quest is a nonprofit umbrella organization employing 5,000 people at three hospitals, several medical practices and two urgent care centers. It is the parent organization of Vassar Brothers Medical Center in Poughkeepsie, Northern Dutchess Hospital in Rhinebeck and Putnam Hospital Center in Carmel, as well as the Heart Center and several urgent care facilities in Dutchess County.

Revenue, expenses

In 2012, the most recent year for which data are available, Westchester Medical had operating revenues of $893 million against $875 million in expenses.

By comparison, Health Quest had $692.6 million in operating revenues and $690.7 million in operating expenses in 2012.

The figures are based on a Poughkeepsie Journal review of audited annual financial reports made public by both institutions.

Income

Health Quest had operating income — the difference between its total operating revenues and expenses — of $1.9 million in 2012, down from $16.4 million the year before.

However, thanks to strong returns on its investments, Health Quest’s net income — the difference between its operating bottom line and non-operating obligations such as long-term debt — was $20.6 million in 2012, up from $12.6 million the year before.

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Over the last four years for which records are available, Westchester Medical’s operating income has ranged between $7.6 million in 2009 to a high of $23.3 million in 2011. In 2012, it had $18.9 million in operating income.

“Nearly a decade ago, Westchester Medical Center was faced with a similar challenge (as Saint Francis),” spokesman David Billig said. “Our current management team (led by CEO Michael Israel) came in and oversaw a very successful turnaround and the medical center is now entering its ninth consecutive year with a positive bottom line.”

Meanwhile, Westchester Medical’s net income fell from $7.6 million in 2009 to just $226,000 in 2012, according to the audited reports.

In an open letter to the community, Health Quest CEO Luke McGuinness drew pointed contrasts between Health Quest’s financial track record and other interested parties.

“We are the only institution that has voiced interest in Saint Francis that has successfully operated with a strong profit margin since 2006,” McGuinness wrote.

And in a comment that appeared to be pointed directly at Westchester Medical, McGuinness said “we have never relied on county or state subsidies for our financial stability.”

In its first years as a state authority, Westchester Medical received tens of millions of dollars in taxpayer-funded subsidies. The hospital said it last received an inkind subsidy of $9 million in 2009.

Westchester Medical center has gone through a number of rounds of layoffs. As a result, members of the local Civil Service Employees Association unit agreed to accept no raises in 2013, 2014 and 2015 in their most recent contract, in exchange for a no-layoff clause.

Union members also agreed to contribute $65 a month toward health insurance premiums. It wasn’t clear what Health Quest union members contribute.

Assets

Health Quest reported more than $271 million in unrestricted assets available in 2012.

Debt

Furthermore, Westchester had $441.8 million in long-term debt obligations at the end of 2012, compared to $158.7 million for Health Quest.

“The ratings agencies have consistently raised or maintained our ratings at investment grade and we have more than $200 million in cash on hand” as of Dec. 31, Billig, the spokesman, said.

McGuinness, the Health Quest CEO, noted in his letter that Health Quest received an A3 rating — high quality and low risk — with stable outlooks from Moody’s on $28.5 million in taxable bonds.

The agency wrote in 2012 that its rating “is driven by Health Quest’s favorable service area, strong market position, deleveraging in recent years and operational strength.”

Westchester has also received A3 ratings on its long-term debt. In December, Moody’s affirmed its A3 ratings on $429 million of outstanding bonds.

The agency based its rating on Westchester Medical’s “continued financial and operational stability,” but also raised concerns about its high Medicaid exposure and continued uncertainty regarding future state funding levels.